August 2022, Vol. 249, No. 8


South East Europe, Balkans Get Ready for US LNG Shipments

By Andreas Walstad, P&GJ European Correspondent  

(P&GJ) — The 105 Bcf/year (3 Bcm/year) Interconnector Greece Bulgaria (IGB) pipeline is expected, after long delays, to become operational this autumn, allowing Bulgaria to access more LNG via Greece. The timing could not have been better; Gazprom recently cut off all supplies to Bulgaria following Sofia’s refusal to pay for Russian gas in rubles.

U.S. LNG is positioned to replace a chunk of the Russian gas in the region. Two cargoes arrived in June and at a price lower than what Bulgaria used to pay Gazprom for piped gas, according to a statement by Bulgarian Prime Minister Kiril Petkov and U.S. Vice President Kamala Harris in May.   

Bulgaria currently has one interconnector with Greece, the 141.2-Bcf/year (4-Bcm/year) Kulata-Sidirokastro link, which can transport LNG regasified at Greece’s 7-Bcm (5.1 mtpa) Revithoussa terminal. The IGB will boost interconnection capacity between the two nations significantly and may even be expanded to 5 Bcm/year (177 Bcf/year) at a later stage.   

Moreover, the 194.2-Bcf/year (5.5-Bcm/year) Alexandroupolis floating storage and regasification unit (FSRU) in northern Greece will add more options for LNG imports via the pipeline. Construction work on Alexandroupolis has started and the FSRU is expected to be operational by the end of the year.   

IGB will also be filled with gas from the 353.1-Bcf/year (10-Bcm/year) Trans Adriatic Pipeline (TAP), which brings gas from offshore Azerbaijan to Europe. Bulgaria is expected to import 35 Bcf/year (1 Bcm/year) from TAP, which became operational in late 2020. More gas from Azerbaijan may flow to Bulgaria in the future because expanding the capacity of TAP to 706.6 Bcf/year (20 Bcm/year) is currently under discussion.   

The total investment cost for the IGB is estimated at $252.57 million (240 million euros), of which EUR 45 million is provided under the European Energy Program for Recovery (EEPR), $41.2 million (39 million euros) under the Operational Program “Innovation and Competitiveness” (OPIC) and a $114.6 million (109.9 million euro) loan from the European Investment Bank (EIB). The remaining funds were secured by the shareholders, which are Bulgarian national company Bulgarian Energy Holding (BEH) and the Greek-Italian company IGI Poseidon, the latter owned by Edison and Depa.   

The pipeline, which runs from the town of Komotini to the town of  Stara Zagora on the Bulgarian side is 113 miles (182 km), 94 miles (151 km) of which is in Bulgarian territory. A final investment decision (FID) was taken in 2015.   

Bulgaria will need gas from the United States and elsewhere to support its energy transition. Coal accounted for around 40% of the country’s power generation in 2021, the main source ahead of nuclear power, which had a share of about 35%, according to data from Ember Climate.   

Gas only accounted for 6% of power generation, while hydro and renewables also had smaller shares. Coal will need to disappear gradually from the country’s energy mix for Sofia to have a chance of reaching the European Union (EU) target of reducing greenhouse gas (GHG) emissions by 55% by 2030 compared with 1990 levels. Bulgaria also needs gas for district heating and industrial use.   

Serbia Eyes US LNG  

The IGB pipeline and Greek LNG terminals should also benefit the Balkan countries when the 1.8-Bcm/year (64-Bcf/year) Bulgaria-Serbia Interconnector (BSI) becomes operational, which, after long delays, may happen late next year or in early 2024. The new infrastructure, largely financed by the EU, means nations that were previously highly dependent on Russian gas will receive alternative supplies, including U.S. LNG via Greece.   

The 106-mile (171-km) BSI gas link will connect Niš in Serbia with Sofia. The project has been financed by the EU and the European Investment Bank (EIB) with a $52.06 million (49.5 million euro) grant under the Instrument for Pre-accession Assistance (IPA II) and a $26.3 million (25 million euros) EIB loan.   

Serbia currently imports almost all the gas it consumes from Russia because its domestic production is less than 10% of consumption, according to figures from the country’s energy ministry. It signed a new three-year supply deal with Russia’s Gazprom in May this year.   

Until recently, Serbia had only one route for gas inflow from Russia – the Russia-Ukraine-Hungary-Serbia route – leaving the country heavily exposed to geopolitical developments. However, since January 2021, Serbia has also been receiving Russian gas via Bulgaria through the Balkan Stream gas pipeline, which is an extension of the Turkish Stream (Turkstream) pipeline.   

Serbia consumes about 84.75 Bcf/year (2.4 Bcm/year) of gas, but this may increase in the coming years owing to a gasification program of the power and heat sector in a bid to replace coal. Around 70% of electricity production in Serbia is from low-grade lignite coal, while most of the remainder is generated by hydro power plants.   

It is nevertheless clear that the BSI should greatly improve security of gas supply in Serbia.  

“For Serbia, this is an additional interconnection, which should increase the country’s security of supply, and is supported with grants from the EU,” said Predrag Grujicic, head of Gas Unit at the Energy Community Secretariat, an organization that was set up to extend EU energy laws to the region.   

“This project is of particular importance, due to its size, as it would allow the country to diversify circa 50% of its gas supply and bring more imports from non-Russian sources as of 2024,” he said.   

Bulgaria can also benefit from reverse flows on the pipeline and connection to upstream storage facilities in Hungary. Theoretically, at least, Bosnia and Herzegovina could also receive some non-Russian gas volumes through its interconnection point with Serbia.   

The gas expert added that companies from Serbia and the downstream markets have announced that they have booked capacities on the Alexandropoulos LNG terminal, the operational date of which should coincide with IBS going live. This opens the door for U.S. LNG to flow to the Balkans.   

Even gas from Israel’s Leviathan field in the Mediterranean could flow to Bulgaria and the Balkans via Greece if the 353.1-Bcf/year East Med pipeline gets built. The project had been written off previously by many but is back on the table following concerns over Russian gas supplies.   

As for the 38-mile (62-km) Bulgarian section of the IBS pipeline, TSO Bulgartransgaz EAD and DZZD Ferrostaal Balkangaz, the latter a German-Bulgarian consortium, signed a contract for construction in May. However, there appears to have been no updates since, which has prompted concerns about further delays.  

“The Bulgarian side announced on May 5 that the company, which will execute the works on the Bulgarian side, was selected, but we have not received an update since,” said the expert. “If the Bulgarian side does not speed up construction, the timeline for launching operation could be put in question.”  

North Macedonia could also use Greece’s LNG terminals in the future. In July 2021, North Macedonia and Greece signed an agreement for the construction of a 52.9-Bcf/d (1.5-Bcm/d) gas interconnector. An FID is expected to be taken this year.  

Hurdle Remains  

Market liberalization in the region, in terms of access to pipelines and interconnection points, still has a long way to go.   

State-owned Srbijagas, for example, which is the promoter of the BSI project on the Serbian side, is still not fully unbundled in terms of separation of the company’s transmission and supply businesses.   

This means that TSO Transportgas Srbija is still subordinated Srbijagas, according to the Energy Community’s 2021 annual implementation report. Distribution and transmission company Yugorosgaz Transport, a subsidiary of Gazprom, is not unbundled either.   

In addition to these “severe breaches” of the EU’s Third Energy Package, the report said Transportgas Srbija continues to deny access at Horgos, the Serbian interconnection point of the new 6 Bcm/year (212 Bcf/year) interconnector between Serbia and Hungary, and that the TSO is only booking capacities for Srbijagas, Gazprom Export and suppliers of Bosnia and Herzegovina.  

“Srbijagas thus effectively prevents suppliers from more liquid central European hubs from entering the Serbian market, and the pipeline is virtually empty,” said the report.   

Moreover, Gastrans, a project company for the pipeline stretching from the Serbian-Bulgarian border to the Serbian-Hungarian border, which is owned jointly by Gazprom and Srbijagas, has been exempted from granting access to third parties by the Serbian regulator. This is not compliant with the EU Gas Directive, the report noted.   

Competition also needs to improve on the Bulgarian gas market where state-owned company Bulgaria Energy Holding (EAD) is the dominant player. But with more interconnectors coming onstream, as well as capacity expansion of the Chiren gas storage facility from 19.4 Bcf/year to 35.3 Bcf/year (0.55 Bcm/year to 1 Bcm/year), owing to a $82.1 million (78 million euro) grant, competition on the Sofia-based Balkan Gas Hub may well increase. And with more competition, non-Russian gas, including U.S. LNG, should be more affordable for consumers in the region.   

The U.S. supplied 776.9 Bcf (22 Bcm) of LNG to EU countries in 2021, and Washington has pledged to supply at least 530 Bcf (15 Bcm) of additional volumes in 2022. In reality, supplies to Europe will likely be much higher than that.   

In the first four months of 2022, the U.S. exported 74% of its LNG to Europe, compared with an annual average of 34% last year, according to the Energy Information Administration (EIA). This stands to benefit Southeast Europe and the Balkans, which will need as much non-Russian gas as they can possibly get in the coming years.  


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